January 27, 2009

Student Blogger - Global Warming: Valuing Foreign Civilizations

United
States' cost-benefit analyses on global warming do not currently account for
any loss Americans would feel if global warming harmed foreign countries. This
may cause policymakers to underestimate the potential costs of global warming
to American citizens. But including them raises a couple of problems. How do
you figure out how much Americans value foreign civilizations? And if you could
figure that out, what do you do if they aren't the results you hoped for (i.e.
Americans just don't care that much)?

Professor
David Dana explored these issues in a recent paper (downloadable here). The paper
urges policymakers to consider the potential losses to American citizens if
foreign countries were harmed by global warming. These costs may be some type
of intangible companionship, or more tangible values, such as the enjoyment of
a nice overseas vacation. To the extent foreign losses are excluded, these cost
benefit analyses may underestimate the potential losses, causing us to spend
too little to stop global warming. And since a large portion (disproportionate
even) of global warming's effects are expected to occur elsewhere (countries
with little inland area), we may be grossly underestimating the costs.

How
do we determine the value that American citizens place on foreign
civilizations? The dominate method in cost-benefit analysis is to figure out
how much Americans would pay to save foreign civilizations, termed "revealed
preferences." Attempts have been made to do so by looking at foreign aid and
private charitable donations. We reveal how much we care about foreign
civilizations by donating money. These studies suggest Americans do not value
foreign citizens very highly (1/8th to 1/2000th of an American citizen). Professor
Dana argues there are problems that make these figures inaccurate. Americans
may lack information on foreign conditions or may fear their money is being
wasted due to foreign corruption. And of course, this is the classic free-rider
problem: Why should I donate? Other people will.

Instead
of using inaccurate revealed preferences, Dana suggests that stated
preferences—just asking people to place a value on foreign civilizations—is the
next best method. These surveys present their own problems. When it isn't your
own money, it's easy to give it away to foreign countries. People may state an
amount that they feel is socially expected, but that bears little resemblance
to the value they would privately give.

Professor
Dana's paper presents a couple stated preferences surveys on how much people
would donate to save foreign countries from disasters. The results show that
people would donate roughly $20-$30 to save a US city from floods and $10 to
save an Asian city. But like most stated preferences surveys, it's hard to
unpack the meaning of these results. One potential improvement over the typical
stated preference survey may be to perform an experiment where the subjects are
given a hypothetical budget and must allocate that budget to various causes,
such as saving a foreign city from a flood, or cutting taxes.

Even
if we could confidently determine the value people currently place on saving
foreign civilization from the potential effects of global warming, it may not
tell us much. If Professor Dana is correct and one of the main obstacles to
revealed preferences is a lack of information, changing the available
information would change people's valuation of foreign countries. This may lead
to a perverse result where some people would engage in publicity campaigns to
change the outcomes of cost-benefit analyses. Those who want to take no action
to prevent global warming would spend money to cause people to care less about
foreign civilizations. Or on the flip side, if policymakers viewed US citizens
as not caring enough, they may publicize global warming so that people care
more. Of course this problem exists in any type of cost-benefit analysis. But
global warming may be distinct situation because people are especially reliant
on outside sources of information to form opinions regarding the costs and
benefits of global warming. Their preferences are especially malleable.

However,
stated preference surveys may have value outside of their use in cost-benefit
analyses. Moral theorists could use them to refine their efforts of encouraging
a more activist approach to global warming. If the surveys show people place
little value on foreign countries, then moral theorists should focus less on publicizing
the effects of global warming and more on changing people's fundamental world
outlook. On the flip side if the surveys show people care greatly about foreign
countries, then activists would want to focus their approach on informing
people about global warming, or ensuring them that their contributions are
meaningful. Effective activism cannot be divorced from the prevailing public
sentiment.